Dear Driving for Dollars,
I plan to purchase a new car for about $41,000 and plan to put $3,000 down. I’m currently in bankruptcy, but that is almost over and my current car is almost paid off. My only other debt is my mortgage. Our total household income is about $85,000. I’ve never been late on my mortgage or car loans. Do you think the lender will give me another loan for a new car after the bankruptcy is over? Do you think the rate will be higher than my current car loan?
— Bobby
Dear Bobby,
Lenders look at a variety of factors for any car loan, and a recent bankruptcy is just one of them. Having the bankruptcy on your record will most likely increase your interest rate, but a lender may not lend to you at all, considering your household income and the cost of the car you want to purchase — even without taking the bankruptcy into consideration.
As a general rule of thumb, consumers should spend no more than 20 percent of their monthly household income on all the cars in the household. This figure includes not just the monthly payment, but also the fuel, maintenance and repair costs for all of those cars. Based on the brief figures you cited, a car of that cost is outside of your budget when you factor in the other costs of ownership, even if it’s the only car in your household. Read the Bankrate feature “Choosing the right car to fit your budget” to help you determine what you can really afford.
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